AT&T now biggest WiFi hotspot provider with Wayport buy

AT&T has bought its way into being top dog in the WiFi hotspot world with 20, …

AT&T is dropping a neat $275 million in cash to purchase WiFi hotspot operator Wayport, an 11-year-old provider of Internet service as an amenity, to create the world's largest hotspot network. Wayport started with wired connections in hotel rooms in 1997, but was among the earliest firms to start installing WiFi for the public in airports, hotels, coffeeshops, and restaurants. They exited the airport business a few years ago.

Wayport operates about 13,000 hotspots through direct contracts, including 10,000 McDonald's restaurants, but also had the deal to provide managed services to AT&T's consumer division. Thus, Wayport is in charge of the Starbucks transition from T-Mobile to AT&T, runs WiFi in Barnes & Noble bookstores, and handles a total of 7,000 locations for the telecom giant.

With the acquisition, an AT&T spokesperson said the firm would increase its US footprint to 20,000 locations for its Basic plan, the label for the free service it offers to millions of its subscribers. AT& is adding the 3,000 hotel, healthcare, and other locations in Wayport's network that were previously available only as part of a worldwide Premier package.

Anyone with AT&T DSL, U-Verse, business roaming service, LaptopConnect (its 3G-for-computers offering), an iPhone under contract, or a BlackBerry Bold qualifies for free use of the Basic network. Premier service, now reaching 80,000 hotspots worldwide, is $19.95 per month for those who don't qualify for free Basic service; free Basic users pay $9.95 per month to upgrade to premium.

Wayport is a privately held firm, but released information about its rounds of funding that, combined with details from other sources, put total investment at $120 million to $150 million, not including debt or lines of credit.

On top of the heap

Wayport's acquisition ends an eight-year-long stage in WiFi hotspots in the US in which many relatively small operators contended to built national or even international networks, with a goal of several thousand locations at a minimum.

AT&T now becomes the largest hotspot operator in the world. The second-largest US operator is T-Mobile with a few thousand non-Starbucks hotspots that include hotel chains and all major airline club lounges. According to hotspot directory JiWire, there are about 66,000 free and fee hotspots in the US, but the No. 2 nation is the UK with 27,000, which are split among large players like The Cloud (6,000 in the UK), BT OpenZone (3,000), T-Mobile, and others.

So-called hotspot aggregators, like Boingo Wireless and iPass, have far larger US and worldwide networks, counting tens of thousands of locations in the US—they like to keep this number imprecise—and over 100,000 worldwide. These operators typically charge a fixed monthly rate from $20 to $50 for unlimited or high use. Boingo and iPass both include access to AT&T and Wayport hotspots as part of their networks.

AT&T Fon home

One proviso to AT&T's position: the Fon network already claims the largest hotspot network worldwide, citing about 300,000 active hotspots and over 1 million registered users. The company has investment from Google, Skype, and leading venture capital firms. But Fon is in a different category than other hotspot providers: it relies on individuals to purchase and set up a Fon router (La Fonera), or, in the case of BT's DSL subscribers, to flip a software switch in the modems that BT provides. BT uses the count of Fon hotspots in advertising its OpenZone service, too.

Fon locations are largely scattered across residential neighborhoods, but some can be found in the heart of commercial districts. Many Fon detractors, including former employees, have disputed Fon's active hotspot and membership counting methodology, and there's no comprehensive way to verify its footprint or user base.

Pricing and access is also complicated. If you're operating a Fon hotspot, you gain free access to all other Fon hotspots. BT and other firms also allow their subscribers to roam at no cost onto Fon's grassroots-like network. Fon recently raised its rates for a single day's access to $5/€5; they offer no discounts for longer periods of time.

It might be more accurate to state that Fon is the largest WiFi hotspot network of its essentially unique social/commercial hybrid kind, where some locations have little utility to most residents or travelers; while AT&T is the largest commercial network focusing on traveler and third-place locations.

Remembering where the bodies were buried

The hotspot business in its early stages had much more excitement, with sometimes multiple firms competing for a major chain. When McDonald's put its US stores out for a bid on adding networking services for operations and customers, it decided to run a multimonth test with three separate providers: Wayport, Cometa, and Toshiba. Wayport won the competition; Cometa shut down, and Toshiba exited that line of business.

Some of the larger bodies left along the way include:

Aerzone: A very early entrant, Aerzone had signed contracts to provide WiFi service in airport lounges in 2000, but hit a funding roadblock and shut down late that year. The company was led by Larry Brilliant, a infectious disease expert who now heads Google.org, the search engine's not-not-for-profit philanthropic arm.

Mobilestar: This Texas firm, which shared some history with Wayport, signed the first contract with Starbucks in January 2001 to build out thousands of locations. It ran into bankruptcy late that year, and had its assets acquired by and coffeeshop deal transferred to T-Mobile, which started up its HotSpot division.

AirWave: The San Francisco firm started putting WiFi like crazy into restaurants and other locations in the Bay Area, but discovered rapidly that its management platform had far more potential than deriving revenue from hotspots. It's now the leading independent wireless LAN management software company today, outliving several competitors.

Cometa: This interesting firm said in 2002 it would build 20,000 hotspots by 2004 and sported investment or material participation by AT&T (in the form of its DSL services), IBM (through its global services installation force), and Intel (via its capital investment division). The firm only unwired a few hundred locations by its demise in 2004. The company was founded by, uh, Larry Brilliant. Hey, is that a trend? (Brilliant left the firm midstream, concerned about being called up suddenly as a hot zone—not hotspot—expert for the CDC.)

T-Mobile: Wait, you say, T-Mobile is still a hotspot operator! It's true, and its US market strategy relies partly on WiFi, through converged cell/WiFi handsets that can make and receive calls over either cellular or WiFi hotspot or home networks. Despite several years of being part of Starbucks happy family of suppliers, T-Mobile got the boot in Feburary 2008 as the WiFi hotspot operator. AT&T was signed up instead, and T-Mobile inked a 5-year roaming agreement. T-Mobile's ouster dropped about 8,000 locations from their network. They still operate several airports, including San Francisco International, and some smaller hotel chains

Other hotspot providers now singing in the choir invisible include Joltage, SOHO Wireless, WiFiMetro, and at least 20 more.

Bigger, better, and not more expensive

AT&T's move into becoming the far-largest hotspot operator doesn't seem to presage a complementary action to raise prices now that they're in charge. In fact, AT&T appears to be much more interested in giving away WiFi. There's method behind that madness.

WiFi allows AT&T to offload traffic from its expensive 3G network to relatively cheap WiFi networks. These WiFi networks are backed in the company's large territory by DSL that it owns. For DSL and fiber users, the free WiFi adds additional lock-in value: cable Internet service and even competitive DSL providers can't offer a large, national WiFi network to their subscribers, and that reduces customer churn and marketing expense.

While AT&T has appeared to be entirely focused on wireless as its future, putting billions into new spectrum licenses and building its cellular brand, it didn't forget about how WiFi fits into a larger strategy to extend its reach and keep its customers.